China's Xi promises to open economy, lower tariffs

Chinese President Xi Jinping on Tuesday promised to open the country’s economy further and lower import tariffs on products including cars, in a speech that struck a conciliatory tone on the rising trade tensions between China and the United States.

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Xi also said China would raise the foreign ownership limit in the automobile sector as soon as possible and push previously announced measures to open the financial sector.

“This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products,” Xi said at the Chinese Boao Forum for Asia in Hainan province.

The comments sent U.S. stock futures, the dollar and Asian shares higher.

Xi’s speech comes amid rising trade tensions between China and the United States following a week of escalating tariff threats sparked by U.S. frustration with China’s trade and intellectual property policies.

Following are analysts’ comments on the speech:

JONAS SHORT, HEAD OF BEIJING OFFICE AT EVERBRIGHT SUN HUNG KAI:

“What we’d wait for is more specific measures to come out, which will happen over the course of the Boao Forum most likely. But mainly he echoed similar sentiments as Liu He in that...Liu He said we’d be surprised by reform, by the pace of reform, in his Davos speech.

“The other interesting aspect of it, I think, is increased IPR protection, which is very important for their industrial manufacturing sector.

“I think the market has reacted really positively to this, and that’s just because they see it as a diffusion of trade tensions. China is opening sectors where they already have a distinct advantage, or a stranglehold over the sector, so for example banking as well. It’s vastly dominated by existing domestic players.”

DAVID QU, CHINA MARKETS ECONOMIST AT ANZ, SHANGHAI:

“His speech is very broad and we view it as a declaration. It will be very interesting to see how it will be implemented. It will not have a direct market effect, but it could help to lower the temperature of the ‘trade war’.”

YOSHINORI SHIGEMI, GLOBAL MARKETS STRATEGIST, JPMORGAN ASSET, TOKYO:

“His comments seem to have covered all the major issues U.S. have raised, including intellectual property and liberalisation of domestic markets. Xi threw the ball into the U.S. court but it appears China is laying the groundwork to achieve an agreement with the U.S.”
YANG HAI, STRATEGIST AT KAIYUAN SECURITIES:

“With his speech, Xi is offering a solution to the Sino-U.S. trade dispute.

“Xi’s waving an olive branch to the U.S., and the market is now waiting to see how the U.S. side will play the card in response. The market appears positive, hopeful that the dispute can be solved through negotiations.”
SEAN YOKOTA, HEAD OF ASIA STRATEGY AT SEB, SINGAPORE:

“The main driver is Xi’s speech. The assumption and the speech so far is not escalating the tensions. Xi is talking more about talking and cooperating. He is backing down and reducing the trade tensions.

“He said ‘lower’ auto import tariffs, which is the opposite of the trend in recent weeks from both U.S. and China in ‘raising’ tariffs. The reduction in trade tensions is good for global trade, growth and risk sentiment and helps EM currencies do well. Long yen positions are getting unwound as risk sentiment improves, you see things like AUD, a typical risk currency, improve as well.”

ON YUAN: “Well, the devaluation story goes completely away. We saw that China was not looking to deval this morning as well since the CNY fixing came in line or slightly stronger today. China has no intentions to weaken the currency to escalate trade tensions and it is gaining. I have a 6.10 forecast on CNY year-end.”
SEAN CALLOW, FX STRATEGIST, WESTPAC, SYDNEY:

“President Xi has ignited a rally in risk assets that might have some legs if the U.S. can keep a lid on the protectionist rhetoric for a while. There must have still been considerable nerves about the speech in markets since AUD and stocks jumped on what should have been largely expected pledges to abide by the global rules-based order.”

RODRIGO CATRIL, SENIOR FOREX STRATEGIST, NATIONAL AUSTRALIA BANK:

“It’s been a pretty good speech in terms of soothing market concerns over trade. Xi did all that without even mentioning Trump. He said it was in China’s own interest to have an open economy, and that trade is good for everyone, he significantly acknowledged the intention to lower tariffs for some industries. So he’s essentially touched on all the major concerns from President Trump.

“If you want to be critical, Xi did not mention the time frame for any of this. That could be a source of unresolved tension in coming days. But overall it was good news. The Aussie in particular is benefiting from it.

“We have had a bit of a yo-yo effect in the markets recently. Our sense is that because of the intricacies of the negotiations, there is still potential for conflicting headline but the general theme looks positive. The base case is that some resolution will be achieved.

KEN CHEUNG, SENIOR ASIAN FX STRATEGIST AT MIZUHO BANK, HONG KONG:

“What Xi mainly wanted to express was that China will continue to open up this year. And all the measures he mentioned in the speech were to shrink down other countries’ trade deficit with China, including opening up markets, lower import tariffs, and the IP protection. Xi was responding to the Trump administration’s accusation against China. Xi expressed his position today - he does not want a large-scale trade war with the United States.

“Indications for the financial markets are that chances for a full-blown trade war are not high. I think he eased market tension. Major currencies like yen and euro have reacted to his speech, the market is back to a risk-on tone.

“For the Chinese yuan, it is likely to stay stable.”

YUKINO YAMADA, SENIOR STRATEGIST AT DAIWA SECURITIES, TOKYO:

“This was quite a surprise amid worries that there may be no solution to U.S.-China trade frictions. Lowering tariffs on autos is significant, given it is one very big industry and given difficult issues surrounding EVs. We now have to see how Trump will react but markets will surely react positively on rising hopes that a trade war will be averted.”